Executive Fruit’s financial manager believes that sales in 2015 could rise by as
ID: 2738655 • Letter: E
Question
Executive Fruit’s financial manager believes that sales in 2015 could rise by as much as 20% or by as little as 10%. Assets and costs change in proportion to sales, debt remains constant, and no new equity financing occurs.
Recalculate the first-stage pro forma financial statements under these two growth assumptions and calculate the required external financing (All figures are in thousands). (Enter your answers in thousands.)
Assume any required external funds will be raised by issuing long-term debt and that any surplus funds will be used to retire such debt. Prepare the completed (second-stage) pro forma balance sheet. (Enter your answers in thousands.)
Executive Fruit’s financial manager believes that sales in 2015 could rise by as much as 20% or by as little as 10%. Assets and costs change in proportion to sales, debt remains constant, and no new equity financing occurs.
Explanation / Answer
Answer a Calculation of required external financing INCOME STATEMENT Base Case 20% Growth 10% Growth Revenue $4,500.00 $5,400.00 $4,950.00 Cost of goods sold $4,050.00 $4,860.00 $4,455.00 EBIT $450.00 $540.00 $495.00 Interest $90.00 $90.00 $90.00 Earnings Before taxes $360.00 $450.00 $405.00 State and Federal Taxes (40%) $144.00 $180.00 $162.00 Net Income $216.00 $270.00 $243.00 Dividends $144.00 $144.00 $144.00 Retained Earnings $72.00 $126.00 $99.00 BALANCE SHEET Assets Net working Capital $450.00 $540.00 $495.00 Fixed assets $1,800.00 $2,160.00 $1,980.00 Total Assets $2,250.00 $2,700.00 $2,475.00 Liabilities and shareholders' equity Long Term Debt $900.00 $900.00 $900.00 Shareholders Equity $1,350.00 $1,476.00 $1,449.00 Total Liabilities and shareholders' equity $2,250.00 $2,376.00 $2,349.00 Required External Financing $0.00 $324.00 $126.00 Answer b BALANCE SHEET Base Case 20% Growth 10% Growth Assets Net working Capital $450.00 $540.00 $495.00 Fixed assets $1,800.00 $2,160.00 $1,980.00 Total Assets $2,250.00 $2,700.00 $2,475.00 Liabilities and shareholders' equity Long Term Debt $900.00 $1,224.00 $1,026.00 Shareholders Equity $1,350.00 $1,476.00 $1,449.00 Total Liabilities and shareholders' equity $2,250.00 $2,700.00 $2,475.00
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